2014 Housing Market Review

2014 Housing Market Review

Cameron Kusher, December 12 2014

Source: RP Data

Combined capital city dwelling values fell by -0.3 per cent in November 2014 according to the CoreLogic RP Data Home Value Index. Over the month, values increased in four cities and fell across the remaining four. Values were higher over the month in Sydney, Brisbane, Perth and Hobart and were lower elsewhere. Over the first 12 months of the year, combined capital city home values have increased by 7.0 per cent. As a result, it looks as if home value growth in 2014 will be lower than the 9.8 per cent increase in 2013.

Over the three months to November 2014, combined capital city home values rose by 0.8 per cent. The results over this period show that the growth in the market is quite narrow with only Sydney (3.1%), Brisbane (1.7%) and Perth (0.4%) recording value rises. Elsewhere, values fell over the three months by -1.6 per cent in Melbourne, -0.5 per cent in Adelaide, -2.5 per cent in Hobart, -2.1 per cent in Darwin and -3.3 per cent in Canberra.

The rate of home value growth over the 12 months to November 2014 has continued to slow. After the annual rate of home value growth across the combined capitals peaked at 11.5 per cent in April it has slowed to a rate of 8.5 per cent in November. The 8.5 per cent growth over the year to November is the slowest rate of annual growth since November of last year. Sydney continues to be the key driver of capital growth with home values up 13.2 per cent over the past year. Melbourne has been the second strongest performer with values up 8.3 per cent and Brisbane home values are 6.0 per cent higher. Elsewhere, values have risen by 2.8 per cent in Adelaide, 1.4 per cent in both Perth and Darwin, 5.2 per cent in Hobart and 1.7 per cent in Canberra. The annual rate of home value growth is now lower than the recent peak across all capital cities other than Hobart.

Houses have recorded a superior rate of value growth compared to units across the combined capital cities over the past year. Over the 12 months to November, capital city house values are 8.9 per cent higher compared to a 5.9 per cent rise in unit values. Across each capital city annual value growth for houses has been greater than that for units over the last year.

Combined capital city home values are now 10.8 per cent higher than they were at their previous cyclical peak in October 2014. Between October 2010 and May 2012, combined capital city home values fell by a total of -7.7 per cent. From their low point in May 2012, combined capital city home values have increased by 19.6 per cent however, the value increases have been narrowly based. The greatest rises in values over the current growth phase have occurred in Sydney (31.2%), Melbourne (17.6%), Darwin (17.5%) and Perth (15.5%). Growth across the remaining capital cities has been much more moderate with values rising 10.6 per cent in Brisbane, 7.4 per cent in Adelaide, 5.2 per cent in Hobart and 4.8 per cent in Canberra. As the data shows, Sydney has been the primary driver of value growth followed by Melbourne, Darwin and Perth albeit their growth has been somewhat lower than Sydney’s.

CoreLogic estimates that over the third quarter of 2014 there were 53,962 capital city houses and 24,124 capital city units sold across the country. The number of home sales over the most recent three months is -2.8 per cent lower than over the same period in 2013. House sales are actually 1.0 per cent higher than a year ago while unit sales are -10.3 per cent lower. Importantly with so many off –the-plan sales taking place final numbers upon settlement of these projects may revise higher. Within the individual capital cities, sales over the last three months were lower than a year ago in Sydney, Perth and Canberra but still higher elsewhere.

Selling conditions are still quite favourable in the market however, stock levels are starting to rise and there are variations across the cities. Discounting levels across the combined capital cities sat at 5.5 per cent while the average time on market is at an all-time low of 36 days. Remember that the stronger markets of Sydney and Melbourne are having a much greater impact on these figures. The number of new properties listed for sale across the combined capital cities is now 0.4 per cent higher than a year ago. Total listings are -2.4 per cent lower than they were a year ago however, they are currently at their highest level since the middle of December last year. With stock on market rising it will be very interesting to see what happens to time on market and discounting levels over the next few months.

Value growth on an annual basis remains much stronger than rental growth however, the more recent weaker capital growth conditions have seen the decline in gross rental yields stall. Over the past 12 months, combined capital city rental rates have increased by just 1.9 per cent. House rents have increased by 1.8 per cent and unit rents are 2.3 per cent higher. Although rental growth is slow, rental rates have risen over the year in all capital cities except Perth, Darwin and Canberra. With a strong pipeline of dwellings both under construction and due for commencement it seems likely that the rate of rental growth will remain soft for the foreseeable future. Gross rental yields across the combined capital cities sit at 3.7 per cent for houses and 4.5 per cent for units. At the same time a year ago they were recorded at 4.0 per cent and 4.7 per cent however, yields have been on hold for the past four months for both houses and units.

As always, there is likely to be a continued variance in performances from city to city and region to region. Much of the growth over the past two and a half years has occurred in Sydney and Melbourne and this appears to be continuing with the rise in values only moderate outside of these cities. Note that the annual rate of value growth in both Sydney and Melbourne has been slowing over recent months. Subsequent purchasers and investors are the main drivers of the market currently spurred by the low mortgage rate environment. From an investor’s perspective the best opportunity to enter the Sydney, Melbourne or Perth markets has likely passed, especially considering the strong value growth over the past year is now moderating and rental yields are low. The RBA has also flagged that they are concerned with the level of investment lending taking place in both Sydney and Melbourne and APRA has recently announced greater surveillance of mortgage lending, specifically investor and higher risk lending by the banks. It will be interesting to see whether investors start to turn their attention away from cities such as Sydney and Melbourne and towards higher yielding markets that are earlier in their value growth phase such as Brisbane and potentially Adelaide where value growth is now becoming more evident and the cost of housing is significantly lower than in Sydney and Melbourne. Of course, with APRA announcing that banks need to limit their growth in investment lending to around 10% per annum we would expect this will have a significant impact on investor demand for mortgages over the coming year. As a result of these changes and slowing home value growth, investors may potentially start looking at other asset classes. RP Data anticipates that the rate of capital growth, particularly in Sydney and Melbourne will continue to moderate over the coming year. We believe that home values will continue to increase over the coming year however, the rate of growth will continue to slow and markets such as Perth, Darwin and Canberra look susceptible to value falls over the coming year.